Lopez moved from cost-cut hero to defector and alleged thief

Stormy move to Volkswagen led to bitter legal battle, tales of corporate intrigue

J. Ignacio Lopez may have helped save General Motors from bankruptcy in the early 1990s. But the former purchasing chief embarrassed his friend, GM CEO Jack Smith, and was the cause of bitter accusations and lawsuits in Germany and the United States.

It was all about saving money — first for GM and then for Volkswagen Group.

Lopez was a wizard at squeezing suppliers until they hurt. Harold Kutner, GM group vice president for worldwide purchasing from 1998 to 2001, says many of the purchasing policies, methods and philosophies Lopez instituted are still in use.

Lopez, a Spaniard from the Basque region, was brought to Detroit in 1991 by Smith, who later became CEO. When Smith was president of GM Europe in the late 1980s, Lopez was head of GM purchasing there and turned the supply industry topsy-turvy by shredding contracts, demanding price cut after price cut and pressing for improved quality and just-in-time delivery.

GM was in dire straits, and Smith wanted the same results in North America.

In his first year in Detroit, Lopez saved GM $1.1 billion. For 1993, Smith anticipated Lopez would save GM another $2.4 billion, primarily by renegotiating supplier contracts.

But the celebration was short-lived. Lopez bolted to VW in 1993, lured by the promises of VW Chairman Ferdinand Piech that VW would build two of Lopez's long-dreamed-of lean-production factories — one in Spain's northern Basque region and one in Wolfsburg, Germany.

Lopez desperately wanted the Spanish factory because it would make him a hero in his homeland by bringing jobs and a revolutionary way of assembling cars. Lopez believed Smith and GM had reneged on a similar promise for a Spanish plant.

Oops

On March 15, 1993, Smith was ready to announce that Lopez would be promoted to president of North American operations. Just an hour before the press conference, Smith learned Lopez had bolted to VW. Embarrassed and clearly shaken, Smith faced the press with the humiliating news.

In an interview with Automotive News in 2008, Smith stirred up the memories: "I don't know whether fame got to his head, or whatever, but he was infatuated with going over to Volkswagen."

Days later, GM accused Lopez and three purchasing executives who left for VW with him of stealing 70 cartons of documents detailing pricing and future product plans of Adam Opel, its German subsidiary.

GM filed a civil suit in Detroit accusing Lopez and VW of racketeering, fraud, stealing secrets and other misdeeds. German prosecutors launched an investigation that included a raid on VW offices and the filing of criminal charges against Lopez and his associates.

Piech defended Lopez and declared on German TV, "I would put my hand into the fire for him."

In Germany, the drama dragged on for more than two years until all charges were dropped — on condition that Lopez and three other executives pay a fine totaling more than $300,000.

In January 1997 GM agreed to an out-of-court settlement of its civil suit against VW. The German automaker paid $100 million in damages and agreed to buy $1 billion in GM parts over seven years. And Lopez was forced to leave VW.

Two years later, a federal grand jury in Detroit indicted Lopez on charges of stealing trade secrets, fraud and transportation of stolen documents. But Lopez successfully fought extradition to the United States. His Spanish lawyers argued that brain damage suffered in a 1998 automobile accident that left him in a coma for months had affected his memory and caused personality changes.

Lasting impact?

Although Lopez and his methods clearly changed the way the industry does business with its suppliers, some GM executives say the company has moved on.

"I do not believe that there are any strategies that Lopez initiated that we currently use," says Bo Andersson, vice president of global purchasing. "However, there is a process that we have been able to evolve called global sourcing that we use and was initiated by him."

Andersson, who was vice president of purchasing for GM Europe from 1997-99, admits: "There are a large number of GM employees that have in one way or another had some dealings with Lopez, and they all may have learned a different lesson from him."

Smith gives Lopez more credit: "If you look around the world today, all companies are using a worldwide purchasing system."

The 'warriors'

Lopez's purchasing staffers came to be known as his warriors. Each had to spend at least a week in a supplier's factory working on productivity improvement. The program helped suppliers become leaner and more competitive, Kutner says.

The warriors went into hundreds of plants and conducted workshops to help suppliers identify and eliminate waste in their systems.

GM CEO Rick Wagoner, who ran purchasing from 1993-94 after Lopez left, even wore his watch on the wrong wrist as did all Lopez followers who swore they would switch watches to the left hand only when GM's costs were significantly reduced.

Kutner, who was director of materials management from 1986-94 until his promotion to vice president in change of worldwide purchasing, recalled the daily meetings of more than a dozen purchasing executives with representatives responsible for various regions on the world. "He (Lopez) had all of us around the table reviewing our progress."

And Kutner, who retired from GM on Jan. 1, 2002, has a different view from Andersson of the long-term impact Lopez had on GM purchasing. He cites several practices instituted under Lopez that are still used by GM, including: bringing suppliers into a program early; supplier development programs; supplier suggestion programs; and the establishment of a GM product-improvement team.

You can reach Diana T. Kurylko at dkurylko@crain.com. -- Follow Diana on